Jon Beck Industries currently sells bracelets for $500 which includes a mark-up of 25%. Each order is placed by a single individual who charges an average rate of $100 per hour. To file the paperwork as well as to make the relevant telephone calls to the supplier takes an average 2 hours. While, the cost of holding each unit of inventory is $20 per unit.

The company currently orders the coloured beads in quantity of 31,250 units which lasts for 6 weeks. The cost of the beads is 60% of the cost price for the bracelet. Management was advised that if the current order size is doubled, the entity stands to benefit from a 3% discount. However, if the purchase is two and a half times the current lot size, the company will receive a 5% discount. Meanwhile, a 10% discount is to be received if management purchases four times the current lot size.

Management now wants to know the companys optimal order quantity.

Required:

(a) Calculate the EOQ based on the formula. [4 marks]

(b) Calculate the total cost based on the EOQ. [4 marks]

(c) Calculate the total cost for each individual alternate order quantities including the current policy. [16 marks]

(d) Which order quantity is considered the optimal order quantity and why? [2 mark]

(e) State four (4) assumptions of the EOQ model. [4 marks]